You can also automate your 401(k) retirement savings, through target-date funds. But as nice as it would be to put your retirement on autopilot, you still need to investigate target-date funds carefully before investing in them.

The premise behind a target-date fund is relatively simple. Let's say you plan to retire in 2030. You choose a target-date fund that gears its investments toward a 2030 retirement.

As you can see from the chart, the average target fund has done about what you'd expect the past five years — a wretched period for investors.

Best of times, worst of times

Type of fund

5 years

Best 3 months

Worst 3 months

Target 2015 funds

19%

17.50%

-22.00%

Target 2020 funds

18%

21.30%

-26.40%

Target 2025 funds

16%

24.30%

-29.30%

Target 2030 funds

16%

26.20%

-30.90%

Target 2035 funds

14%

26.60%

-31.40%

Target 2040 funds

14%

27.90%

-32.50%

Target 2045 funds

12%

27.50%

-32.30%

Source: Lipper. Dividends, gains reinvested
through June 30.

Funds with the nearest target dates, presumably with the lowest exposure to stocks, have taken the smallest losses.

Where funds differ, however, is what they do when the target date approaches. Financial planners point out that at age 65, you have a good chance of living another 30 years. That being the case, you'll probably need a good slug of stocks in your portfolio for your older old age.

Other funds become income funds at or near their target date. Vanguard's Target Retirement 2030 fund (VTHRX), for example, aims to resemble its income fund within seven years of its target date.

Which is best? Research by Russell Investments suggests that the ideal glide path after retirement is no glide path at all. The argument runs like this:

• Most planners say you should start with a 4% withdrawal at the outset of retirement, and increase that amount each year to account for inflation. So you'll be taking progressively larger withdrawals from your account.

• Your biggest danger when taking withdrawals is a big loss, or series of losses, at the outset. If you lose 15% of your investment because of market action, and withdraw 5%, your account is down 20%. It's extremely difficult to recover from an early loss like that, because any future gains will be reduced by withdrawals as well.

• Looked at that way, the first day of your retirement is the riskiest day for your portfolio. You want less risk early on, not more.

Russell's research, led by Josh Cohen, defined contribution practice leader, found that flat asset allocation after retirement beats any glide path. The next question, then, is the best proportion of stocks in a post-retirement portfolio.

Cohen's suggestion: Somewhere between 20% and 40%, with 32% giving the most likelihood of success. (In a retirement portfolio, success means having money left over when you die.) The rest should be mainly in bonds, with a bit invested in money market securities, or cash.

If you're considering a target-date fund, look at its glide path — and what happens after the fund hits its target date. The Securities and Exchange Commission has proposed new rules for advertising target-date funds but has not enacted them.

Next: Look at the fund's investments. Funds with a 2030 target date, for example, ranged from 64% stocks to 25% stocks, according to Morningstar, the Chicago investment trackers.

Finally, check expenses. As always, the less you give to your fund company, the more you get to keep for yourself. Expenses for the 2030 group ranged from 1.16% for Legg Mason Target Retirement C (ouch) to 0.11% for iShares Target 2030.

Even if you want to put your retirement savings on autopilot, it's good to peer into the window from time to time, to make sure you're not going down in flames. And just to be extra sure, don't put all your retirement money into any one fund. You don't want to automate too much.

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